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Spring 2013

Successfully Competing In Anesthesia Services Today

Michael R. Hicks, MD, MBA, MHCM, FACHE
CEO, EmCare Anesthesia Services, Dallas, TX
From the Spring 2013 issue of The Communiqué

Recently I had the pleasure of speaking with anesthesia residents and faculty at a well-known progressive academic anesthesiology department. Opportunities like this are among the high points of my professional life because I invariably know more when I leave these presentations than when I arrive. This time was no different.

My recent professional focus has been on working with hospitals and health systems to identify workflow enhancements and quality improvement initiatives to streamline care delivery and deliver greater total value. On a more theoretical level, I have been identifying and developing novel ways to produce comparable or better perioperative medical care in terms of price, quality, and service by using nontraditional processes or clinicians in nontraditional ways. With few exceptions, however, these latter efforts fall mainly into what one would call product development—showing promise but not yet ready for prime time.

The topic, then, for this visit was the role of disruptive innovation in theshaping of anesthesia practices in the future and how the nature of competition among those providing anesthesia services might change with new entrants and funding mechanisms. Before venturing into the world of disruption and how things might look radically different, however, I felt strongly that the residents needed some background and explanation of the market as it currently exists so that the disruptive innovations I highlighted would have context as they were introduced to the audience. As a result, I began with an overview of both the business models of traditional private practice groups and the larger regional and national practices as well as some of the evolving global models for health care delivery that I see developing around the country.

As the presentation proceeded, a key discussion point centered on the drivers of capital flow into the specialty, particularly the sources of funds that would deliver the expected return on the invested capital. Very early a question arose as to what unique skills and competencies are possessed by large practices and private equity investors that lead to their belief that they will be successful and that the success will last. In other words, why do investors and owners of managed anesthesia practices believe that there is profit to be derived from what they do and where is the profit derived? Simply put, what is the nature of competition in anesthesia currently, what is strategic versus operational effectiveness, and what is necessary to be competitive today? Practices and management companies succeed today not with their ideas but with their execution.

Sustaining vs. Disruptive Innovation

At their core, essentially none of the competitive competencies being sold by anesthesia management companies are in the category of disruptive innovations. Instead, successful companies within the anesthesia space are still focused on implementing and executing sustaining innovations. These product offerings include “advances” such as increasing the adoption of the anesthesia care team model, better management practices built upon fiscal and behavioral discipline, increased alignment with institutional goals, embracing a culture of transparent outcomes measurement, and quality and process improvement that most other industries have long taken for granted.

These product attributes, while still, sadly, radical to many in anesthesia, are merely sustaining innovations and not disruptive. The activities themselves are not even strategic in the business sense. Even the smallest of practices in the anesthesia marketplace have the ability to adopt and implement all of the aforementioned product offerings. In fact, these activities are more appropriately described as improvements in operational effectiveness. One view on the concept of operational effectiveness was developed by Michael Porter, a thought leader in the area of strategy and competitiveness, to differentiate activities that can be done by many (competing by doing things we both do, only better) from activities that can only be done by a few (strategic differentiation) (Porter, 1996).

At its essence Porter argues that few companies should be able to successfully compete solely on the basis of continual improvements in operational effectiveness because of the rapid dissemination of best practices. This is particularly true for process-driven specialties such as anesthesiology. The fact that large regional and national companies are successfully competing for practices is less about their strategic differentiation than it is about the reticence of incumbent groups to adapt to changing times and make the difficult decisions needed when dealing with improving operational effectiveness.

What then, as the residents in the audience asked me, should they—and existing groups—do today to remain competitive in the current marketplace?

Strategies to Remain Competitive

First, actively manage the performance of the practice and its members with an emphasis on the latter. Unfortunately, many practices like to believe, and try to function as if, they offer a homogenous level of quality and service to their patients, surgeons, and facilities. They generally do not offer this, and most of the practices deep down know it. Ironically, most everyone else in the building knows it as well. Differing skill sets, attitudes, and motivations among clinicians mean that without some form of measurement and management being brought to bear, the care and service delivered will be uneven and predictably so. The ability to provide leadership, manage people and situations, and make difficult staffing decisions isa large part of the product offering by successful practices.

One of the fundamental problems that groups face is an inability to make management decisions for the future that might cause some immediate pain. Some of this is due to generational issues within the field. Like me, many of the leaders of groups are older and have a relatively short timeline to retirement. The idea of investing in the future of the practice means incurring some financial pain now for a return to be delivered later. If your professional life timeline is measured in months or even a few years, as in the case of the leadership of many groups, there is no possibility of return down the road. In fact, this is a significant reason that many groups solicit acquisition offers now to the potential detriment of younger members of the practice.

Second, seek ways to lower the cost of your product before someone does it for you. Large regional practices and national companies get an audience for just a few reasons. Poor quality of anesthesia care is almost never one of them. If your practice receives subsidization I promise you that it is viewed as a cost on the hospital’s income statement and will be treated like one. Provide high quality services and the hospital may well be willing to pay you for them. However, you should still actively seek ways to reduce the financial burden on the hospital, if possible. If nothing else the exercise itself will educate the practice for the next difficult contract negotiating session and send a powerful message that you aren’t seeking a handout. This will involve developing familiarity with facility operations and workflow including activities outside of the operating rooms. Many processes and people have an effect on surgical patient flow and are drivers of cost for both the facility and your practice. The science behind these investigations is called operations management and, as an added benefit, knowledge of this branch of management will be part of the future of our specialty anyway. A useful beginning reference with practical tools is the work by Ronen (Ronen, Pliskin, & Pass, 2006).

Third,embrace the concept of nonpunitive measurement, accountability, and the virtues of the quality improvement process as put forth by Deming, Berwick, James, and others (Berwick, 1989; Deming, 2000; James, 1989). Not only is it inevitable that increased individual transparency in terms of outcomes is coming to anesthesia, it is desirable. More important, it is already here. Unfortunately some of you don’t know it yet. If your hospital has an electronic health record, a surgical information management tool, or a pharmacy management system, then it has a record of many of your activities as well. For example, do your patients need more or less opioids than those of your associates? Is it possible that your nerve blocks are not as effective as your peers’? Are pain scores for your patients recorded? Think there could be a correlation? Fortunately, I think, clinicians and institutions have been living in an era where health care has been data rich and knowledge poor. One of the current big ideas in the business world involves the concept of “big data” (McAfee & Brynjolfsson, 2012). Increasingly, technology is allowing the connecting of the myriad number of seemingly disparate data points and creating opportunities for evaluation, correlation and possibly even causation.

Instead of resisting it or putting it off until forced to accept it, offer to take ownership of the measurement and the management of the findings. Yes, it will be initially awkward, even painful, to learn objectively that not everyone in the practice has the same proficiency in the administration of regional anesthesia or engenders the same level of confidence from nursing and surgical colleagues. In reality, however, it is likely just a validation of what everyone including the hospital administration, surgeons, and nursing staff already know. There are a number of easily read resources to gain a working knowledge of these concepts (Carey & Lloyd, 1995; Provost & Murray, 2011).

Fourth, learn how to communicate and most importantly negotiate well. Every interaction that we have in the perioperative process is at its essence a negotiation. Conversations with surgeons and nursing staff about patient prepared-ness, scheduling of cases, or even the discussions of anesthetic options with patients and families are at their heart exercises in negotiation. Sadly, while business education should be a fundamental part of medical school and residency training, it remains largely unavailable to most medical students and residents. Furthermore, these skills are frequently poorly modeled for residents during training.

On a fundamental level this is a disservice to our specialty and to us. On a practical and competitive level excellence in negotiation is a fundamental business skill for anesthesia practitioners. Note that the negotiation skills to which I refer are not positional tactics based on zero-sum scenarios with winner and loser outcomes, but the daily exchanges requiring integrative approaches to solving mutual problems that have risks, benefits, and tradeoffs. Here, desired outcomes are decisions based on collective needs and respect. Fortunately there are a number of resources available to gain some basic understanding of these concepts (Marcus, Dorn, & McNulty, 2011; Shell & Moussa, 2007).

Readers should note that those who excel at this form of communication also excel at both listening and understanding the perspective of those on the other end of the particular issue at hand.

Fifth, the role of the anesthesiologist is going to evolve over the next several years. Changing delivery and payment paradigms as well as the realities of disruptive innovations in perioperative medicine will create unique challenges as well as unique opportunities for the profession. My best advice for those in training or newly in practice, given from the perspective of someone long in the business as well as a potential employer, is to continue developing skills that cannot be easily replaced or are needed regardless of the delivery system changes that ensue. Leadership and communication skills, expertise with quality and process improvement, and maybe most important, the skill and comfort managing the perioperative care of clinically challenging patients will be needed regardless of delivery system changes or disruptive innovations.

Finally, realize that knowing and doing are fundamentally different aspects of competition but both provide the fundamental answer to the questions posed by the residents on the nature of competition in the anesthesia business. If you don’t know what to do then execution is irrelevant. However, practices fail, even those run by sophisticated health systems or management companies, not for a lack of knowledge but for a lack of execution. When both practice leadership and line practitioners understand that their failures are for lack of execution and not for lack of direction the path forward becomes much more clear. In this case, and at this particular point, execution can trump strategy. How long this remains true, of course, is subject for another discussion.

Berwick, D. M. (1989). Continuous improvement as an ideal in health care. N Engl J Med, 320(1), 53-56.
Carey, R. G., & Lloyd, R. C. (1995). Measuring quality improvement in healthcare: a guide to statistical process control applications. American Society for Qualit.
Deming, W. E. (2000). Out of the crisis (1st MIT Press ed. ed.). Cambridge, Mass.: MIT Press.
James, B. C. (1989). Quality management for health care delivery. Hospital Research and Educational Trust.
Marcus, L. J., Dorn, B. C., & McNulty, E. J. (2011).Renegotiating health care: Resolving conflict to build collaboration. Jossey-Bass.
McAfee, A., & Brynjolfsson, E. (2012). Big data: the management revolution. Harv Bus Rev, 90(10), 60-6, 68, 128.
Porter, M. E. (1996). What is strategy? Published November.
Provost, L. P., & Murray, S. (2011). The Health Care Data Guide: Learning From Data For Improvement. Jossey-Bass.
Ronen, B., Pliskin, J. S., & Pass, S. (2006). Focused operations management for health services organizations (1st ed. ed.). San Francisco, CA: Jossey-Bass.
Shell, G. R., & Moussa, M. (2007). The Art of Woo: Using Strategic Persuasion to Sell Your Ideas. Portfolio (Hardcover).

Michael R. Hicks, MD, MBA, MHCM, FACHE is a physician executive based in Dallas, TX. He leads the anesthesia division of a national physician practice management firm as well as managing a large regional physician-owned anesthesia practice. In addition Dr. Hicks is a consultant for a national hospital and ambulatory surgery center company. He can be reached at